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The market for transactional risk insurance is booming

 The market for transactional risk insurance is booming


Given the uncertainties caused by the COVID-19 pandemic and the ensuing economic downturn,

Bargain makers have been eyeing the M&A market hard to assess the potential impact on the deal.

The market,for,transactional,risk,insurance,is,booming



According to Joe Castelluccio, Mayer Brown Securities and Trade Partner, under the influence of the uncertainty created by COVID, one thing has become clear,
 And it is that traders need insurance.

 Throughout 2020, Castelluccio explained that the deal-maker's willingness to use mergers and guarantees (R&W) to conduct various mergers and acquisitions is increasing.

Like dealers, Castelluccio said, the contractors responsible for the transactions can deal "very quickly" with the uncertainty caused by the pandemic.

After the short break in March and April 2020, almost no transactions occurred, and there weren't very many bidders.

 The Transaction Risk Campaign had suddenly reorganized and began reintroducing insurance, except for commercial cases related to COVID.

Casteluccio said: “In the past six to eight months, as various insurance companies have proposed effective risk response strategies,

These exceptions have become more subtle and tailored, in some cases narrower. ''

 This rapid revision reflects a widespread practice that has occurred in the [transaction risk insurance] market over the past few years, where underwriters have become very complex.

The guarantor has not ruled out everything that might be related to COVID-19 and bargaining over its policies, but has begun to closely review various industries and companies, especially in COVID-19 risk management and due diligence.

For example, we have seen more and more companies pay attention to companies purchasing PPP loans or associated with CARES or other government-related pandemic response measures.

Based on the answers to these questions, the insured will receive coverage tailored to his needs and pay a certain premium.

 At the same time, insurance companies are pleased that they have not yet insured a risk black box. "

In the past few years, the willingness of those taking to transactional risk has also increased.

 Including securing transactions in industries previously viewed as difficult to insure (such as financial services),

 So are transactions that involve complex tax and regulatory issues (such as renewable energy transactions). 

“When you hear an expression of risky transactions or liability insurance transactions, the most popular product is R&W insurance, but there are also many professional insurances,” Castellucci said. ''

As long as the guarantor can understand what these risks are. For, policies other than research and development policies can cover specific risks or even known risks.

For example, there are tax risks (perhaps one of the most popular specialty products), and there are also contingent liability risks in government litigation or investigations these policies are often temporary; Premiums are often higher (not surprisingly),

And the limits can sometimes be higher than what you see in R&D policies.

“For example, the tax policies being underwritten are very specific and cover very large contingent liabilities.

Firms use these policies to transfer liabilities or reserves from the balance sheet; They are very useful tools, so I think it's a big deal.

 There is room for growth. It's not a panacea and certainly not suitable for everyone, but the coverage is there. "

Looking forward to 2021, as traders continue to grapple with the uncertain economic outlook,
Castelluccio expects the flow of demand in the TRI market will continue to grow strongly.

 "Although there are some short-term bumps along the way, be it political or regulatory issues, I think the M&A market and the transaction risk insurance market are equipped for continued growth," he said.










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